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Dear Readers now getting news about BpO is very easy. As part of continuing improvement and enhanced reader experience we are happy to announce that we will be circulating a weekly online 100% FREE paper from CafeBpO. This paper will not only be from authors of CafeBpO but also from other sources from the internet like

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There are many benefits for our readers of the same e.g.

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The paper will be available online every week on Tuesday around 4 pm India time (+5:30 GMT). In order to not miss it you can subscribe to the same by clicking the subscribe button on the paper or you can also subscribe to CafeBpo blog to receive it as we will be inserting it in posts on regular basis. Here is the link to the Online Paper of CafeBpO. Below is the screen shot of the first edition of the Free Online Paper giving you news about BpO.

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The Next Wave of Consolidation in BpO Business

—A few weeks ago we have talked about the sale of Firstsource to RPG group and tried to understand what may work in the favor of the deal. The next wave of consolidation in the BpO business continues with the acquisition of Apollo Healthstreet by Sutherland Global. If we look at the history of consolidation in the BpO business this is the third wave. Let us look at some of the earlier wave in the consolidation in the BpO business. It all started when the early start-ups were struggling to grow and needed financial muscle to scale up. They prooved that the third-party model works and the big boys of business were willing to put money behind the concept now.

The First wave of consolidation in BpO was when the early entrepreneurs started selling their companies to big business this included sales of Spectramind to Wipro, Daksh to IBM, Transworks to Aditya Birla group and so on. The sellers were first generation Indian entrepreneurs who were cashing out by selling to both MNCs as well as Indian companies.

The second wave of consolidation in BpO can be considered when the MNC companies started selling their captive centers in India to pure play third-party BpO companies, this would be deals like TCS buying eServe from Citi, Cognizant buying the captive of UBS, HCL buying the captive of Deutsche bank etc. There were two reasons for these sales a) the MNC parents were in bad shape financially ( citi, UBS) and wanted to cash out as many assets as possible to invest in core business. The other reason with more long-term strategic impact is the realization that the cost advantage you get by outsourcing gets blunt due to higher cost of operating the captive center. In this phase the buyers were both Indian and US companies but seller was in almost all cases a large captive of a MNC.

What we are seeing now is the third major phase of consolidation. In this case the large diversified Indian companies are getting out of non core business. The sale of Firstsource by ICICI and Apollo Healthstreet by Apollo Hospitals group is in our opinion first of such deals and we expect many more are in the pipeline. What appears is that either due to regulatory reasons like in case of ICICI or due to financial and strategic reasons like in case of Apollo, a lot of deals are being negotiated behind the curtains and we will keep on hearing about them in the media as and when some thing closes.

Coming back to the Apollo and Sutherland deal given below are the details taken from media reports

The enterprise value of the deal is around Rs 1,000 crore, of which around Rs 210-220 crore will come to Apollo Hospitals Enterprises Ltd (AHEL), which is holding around 39.4%, while Promoters and promoters family are holding around 35-40%and One Equity Partners holding around 10-15%, said Apollo Hospitals sources.

The other major investors are PE funds including Temasek Holdings, One Equity Partners and Schroder Cap, which are holding the rest of the shareholding

The AHEL official said that the proceedings will be used for company’s Rs 2,000-crore expansion plan. At present the company has a cash balance of around Rs 300 crore.
“This acquisition will position the combined organisation as a leading Healthcare service provider with comprehensive information technology and business process integrated solutions and consolidate its presence as a dominant player in the $38 billion US Healthcare BPO market,” according to Sutherland’s statement.

Apollo Health Street provides customized strategic support services to more than 150 healthcare partners throughout the US from 10 global operational centers of excellence.

Prathap C Reddy, Founder Chairman of Apollo Hospitals, one of Asia’s Premier Healthcare Groups said, “In order to drive Apollo Health Street’s growth to the next stage, it was essential to find the right Strategic partner.

“In Sutherland, we found the ideal partner with a proven track-record of excellence in services, technology, and leadership. The combined capabilities of both companies will create a compelling value proposition for our clients,” said the Hospital Chain’s founder.

It is clear that the Apollo group will be using some of this money to reinvest in the hospitals business while some members of the family and PE companies have multiplied their investment.

As always there will be some job loss in the acquired company in the coming months, though both the companies will deny that in the media. Expect more such deals in the coming months.

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CESC Buys Firstsource-A Contrarian view

—Those of you who have been following the stock market in general and BpO business in particular would have noticed the headlines that RPG group company CESC buys Firstsource (Controlled and managed by Sanjiv Goenka). As of now CESC has agreed to buy 49% of Firstsource Limited and also make an open offer for another 25%. This will bring down stake of ICICI which has been trying to find a buyer for some time due to RBI guidelines.The stock markets have not looked at the deal in a benign way and CESC stock went down by 15% and Firstsource also not responding in a positive way. So most people think it is a lose- lose situation for both the companies.We would like to be contrarian here and actually think that this deal may work out in the next 2-3 years.

Disclaimer: We do not own stocks in any of the mentioned company as of today and this post is not a recommendation to buy or sell the stock.

Headcount wise Firstsource has 32365 employees of which 10188 are outside of India, the data disclosed does not mentions the breakup of countries where these 10K employees are. These 32365 employees add an annual revenue of around 500 million USD, making it second largest BPO company out of India after Genpact, both employee strength wise and annual revenue wise. The per employee revenue comes out to be USD 8.38, slightly better than WNS. But the difference is that Firstsource still has 10K employees outside of India and if it can change that mix even by 10% its profitability should change. Though it has an uphill task to increase the revenue per employee, but let us not forget it h as a lot of domestic business also where the realization is less but so are the salaries of employees.

The other difference will come in form of stable parent, it has been in news for 2 years now that ICICI is planning to sell its stake in Firstsource due to RBI guidelines and this has led to slow but steady ouster of top management in last few years, right from Ananda Mukerji, to other senior people. Every time a senior person leaves it leads to continuity issues and loss of focus in the junior employees. Now with a stable parent in form of Sanjiv Goenka controlled CESC, the employees as well as customers should take a sigh of relief and get back to the business.

Impact on Employees: We agree there is no synergy between CESC and Firstsource but let us not forget CESC will not manage Firstsource but remain a holding company taking financial decisions while the day-to-day management will be with Firstsource management current or future that remains to be seen. The management definitely will have to get used to work with an Indian business house and cost cutting will be in focus ( share holders should be happy about it and the employees respect the same if they want to prosper in long run).

Long term positives: So we will stick our neck out and say that in next 2-3 years this deal will work out well for both Firstsource and CESC till then it will be a lot of focus on cost and revenue and employee mix from different geographies and increasing the $ revenue realized per employee. The bench mark set by Genpact is pretty high and all the other BPO companies have a tough climb ahead.

Note: We have not contacted any of the companies mentioned in the post and data is taken from Firstsource website.